I went to the Rethink Music Conference last week. It was great to catch up with people and to meet some new ones. Overall there was much hope for the future but still a lot of grousing about the current state of the music business.

The biggest complaint was that performers were not getting paid enough by Spotify. One tweet said, “I don’t know how any artist can be psyched on #spotify after that presentation #rethinkmusic no real signs of how this ser…“. This perception by artists is a dramatic shift in the music industry from traditional music promotion.

As Seth Godin, the Keynote speaker, noted the first day of the conference, the music industry is not in trouble, the record industry is. In this YouTube video with Ariel Hyatt he notes, “there has never, ever, ever, ever been a better time to be an independent artist”.

he continues to actually answer the question about how the artist should be psyched. “The internet is radio without having to pay the programmer”.

The trouble is many do not perceive plays by Spotify, Pandora, Rdio or other music and Internet radio services are promotional. This changed with the belief that performers should be compensated for non-interactive streams and enshrined in the rates charged by SoundExchange.

Where terrestrial radio pays $0 for performance royalties those that broadcast via satellite or the Internet must pay much more. Pandora, while generating lots of revenue, is running at a loss due to the burden or their royalty payments. With the SoundExchange rates going up in the future some believe that you can not create a music service with non-interactive streams that is profitable.

The record and radio businesses have changed quite dramatically over the last 15 to 20 years. Radio is fighting more and more for the attention of a new audience and the record business is working to transition from selling physical objects and adapt to the new digital world.

While many believe that the music industry is down that is not actually the case. It is the traditional record industry that is down, the broader music industry is doing quite well, even in this down economy. On the radio side that is true too, the old way of broadcasting a local signal terrestrially is changing due to the internet. A station’s ability to aggregate a like minded audience outside of its terrestrial footprint is much easier with the internet.

There are still challenges for the industry though. On the radio side it is the change in their business model for digital broadcast. When broadcasting terrestrially there were no payments for performance royalties because they were viewed as promotional. Your business wants to reach as large an audience as it can. When broadcasting digitally you need to report each “play” to Sound Exchange and pay a royalty for that particular play. Under this model your expenses grow dramatically as you grow your audience. Further as per stream royalty rates continue to escalate so will a station’s future expenses.

Even with these challenges there is a dramatic shift to digital distribution and the Internet. Creative promotors and broadcasters are finding a way to work together to help their constituents grow. Overall the future is quite bright. We just need to find a way to get there together.

Fred Wilhelm started a discussion about the CRB record keeping rules. The complete article on the CRB record keeping is in the recent P2Pnet.

Well, I wanted to add my piece to this so I responded to Fred from the perpective of our customers, the web-casters.

Backbone Networks, as an internet radio aggregator, has an additional concern regarding web-casters. This concern would be true if the rumored standard ISP charge for music is implemented. Web-casters would still have to pay a performance royalty for streaming music to listeners with the ISPs that had implemented the charge. This is music for which the listener already has a right to hear. In other words, the streaming royalty would constitute a double payment.

For listeners of web-casters on ISP services that pay the license fee Backbone would like to see the streaming royalty rates waived however the reporting requirement remain. This would eliminate the double payment while at the same time providing the information back to SoundExchange to enable appropriate allocation to the artists.

Webcasters provide a service to their listeners, they program their shows to highlight new music and other programming that keeps their audience engaged. As such they are helping listeners find new music, i.e. some of the 7500 artists you reference. Anyone who has listened to Radio Paradise, Soma FM, BaGEL Radio, AccuRadio, Pandora or one of the IBS-SRN college radio stations know that these web-casters add significant value to their listener communities.

While we believe that the current royalty rates are way too high and are slowing the adoption of internet radio, this solution would at least help lower the cost web-casters bear for streaming to listeners on those ISPs. This may even help the web-casters that provide the added value of progamming interesting playlists for their listeners to continue to operate.

Separately we have a few additional broader concerns for web-casters. These are:

– The worldwide nature of the internet enables a worldwide audience. However, the complexity to report in the US is multiplied dramatically as the stream crosses borders. This friction in the system is a drag to the overall health of the music industry and internet radio.

– The royalty rates are tied to a particular transmission medium yet the listeners do not make such a distinction. We would support “broadcast neutrality” for the rates and ask that the rates be normalized between terrestrial, satellite and internet transmission. What we find most strange about the rates is that they are highest for internet transmission yet those streams are the most valuable because of the information and statistics that are associated with them.

I bring up this point because as an internet aggregator we would only support providing additional reporting to SX in exchange for reduced rates. Further, the more information provided the lower the rate should be. This data is extremely valuable and should not come for free. To me I think that the full requested information associated with each play is about equal to the current royalty rate.

We are all for finding workable solutions that promote artists while enabling web-casters to operate in a profitable manner and not all web-casters agree with our position but we believe that it is directionally correct and fair to the artists and web-casters.